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Impact 
Backed by spending on infrastructure such as roads and airports which will sustain economic growth, the BSE Sensex is on its course to double in the next 5 years according to Christopher Wood, Chief Strategist at CLSA.
According to the Planning Commission of India, in order to narrow the gap with China, India needs $1 trillion of investment in infrastructure including roads and ports between 2012 and 2017; which is double the estimated spending in the previous five years.
It is noteworthy that China's economy, which was about the same size as India's $183 billion in 1980, has swelled close to $5 trillion, four times that of India, after it boosted public spending.
 Note: Data as on November 19, 2010
(Source: ACE MF, PersonalFN Research)
Thus far on Year-to-Date (YTD) basis the BSE Sensex has advanced 11.5% to 19585.44. However, now valuations amongst the BRIC nations (Brazil, Russia, India and China), India appears the most expensive with BSE Sensex Price to Earnings (P/E) at 18.8 times when compared to 13.3 times for Brazil's Bovespa Index, 7.7 times for Russia's Micex Index and 16 times for China's Shanghai Composite Index.
However, while providing the forecast Mr. Wood said, "the forecast is dependent on how soon the issues in the western world are resolved."
We believe that the health of the Indian economy is very robust given the strong GDP numbers reported (8.8% in Q1 of fiscal year 2010-11) and mellowing inflation. Moreover, our Banking and Financial Service industry is also quite resilient on account of prudent regulatory environment in our country. And now since the Government is evincing interest in the country's infrastructure growth we expect foreign investors to exude confidence in the Indian economy, which may lead to markets scaling new highs in the years to come.
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 | Impact 
The commission structures for selling equity mutual fund (MF) schemes are back on the high levels as those witnessed during the pre-entry load ban regime. With the equity markets buoyant, mutual fund houses are now offering more commissions to their distributors in order to survive in the market.
For instance, for a three-year monthly SIP of  10,000, upfront commission of 8,000 is given, which is equivalent to 2.25% of total investment. For five-year SIPs, it goes up to 22,000 or 3.75% of investment committed.
Mr. Achal Kumar Gupta, MD of SBI Mutual Fund said, "After the ban on entry load, upfront commissions have gone up for different schemes. For SIPs, commission structures vary based on the tenure of the investment."
While the MF distributors will make hay when the sun shines, one good point is MF houses are inculcating a good regular saving habit amongst the investors by telling them to opt for the SIP mode for MF investing which will enable investors to manage volatility of the equity market and in turn lead to long-term wealth creation. | Impact
Considering the fact that understanding mutual schemes has become complex for average investors, the capital market regulator - The Securities and Exchange Board of India (SEBI) has stepped in and has asked several Asset Management Companies (AMCs) to rework on some of the proposed new schemes and file offer documents afresh.
At present more than a dozen New Fund Offerings (NFOs) of leading AMCs such as Reliance, ICICI Prudential, Birla Sunlife, Kotak, Tata and Benchmark Asset Management are awaiting SEBI approval.
SEBI is particularly sceptical about capital protection schemes, as it is not comfortable with the quality of debt papers held by some mutual fund houses. Moreover, the regulator is also going slow on approving structured mutual fund schemes where instead of investing in equities and debt in a pre-determined ratio, the fund manager is given the flexibility to adopt complex strategies.
Structured funds require investors to take active calls on market direction. It (SEBI) is also discouraging fund houses from launching flexicap, thematic funds and also schemes similar to the ones they already have.
Mr. K.N. Vaidyanathan - Executive Director of SEBI said, the regulator (SEBI) is making NFOs more difficult for mutual fund houses as they are misusing the NFO option to pay higher commissions and also because some investors continue to believe that by getting units at par, they are getting them cheap.
We believe that the move taken by SEBI is a prudent one as the markets are already flooded with several complex products; and further approving "complex to understand NFOs" would have made it even more difficult for investors. Also in our opinion, SEBI is also taking prudent measures to ensure that similar schemes (to the one's already existing with the mutual fund house) are not promoted in an attempt to increase the AUMs (Asset Under management) which mean absolutely nothing for measurement of performance of the fund house and the mutual schemes floated by them.
| | | Weekly Facts |
| Close | Change | %Change | | BSE Sensex* | 19,136.61 | (448.8) | -2.29% | | Re/US$ | 45.52 | (0.3) | -0.64% | | Gold /10g | 20,370.00 | 340.0  | 1.70% | | Crude ($/barrel) | 85.77 | 3.2 | 3.84% | | FD Rates (1-Yr) | 6.50% - 7.50% | Weekly change as on November 25, 2010
*BSE Sensex as on November 26,2010 |
In this issue
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In an interview with the Financial Express, Mr. Kenneth Andrade, Head-Investments at IDFC Mutual Fund, shared his views on the road ahead for Indian capital markets and the inflow of foreign money to India.
Mr. Kenneth believes that the current volatility in the Indian capital markets, after touching a new high of 21,000 points is a year-end phenomenon. He believes that the markets have been driven on liquidity throughout this year and the liquidity will prevail going forward. From an economic perspective, he believes that the markets are well through the mid-cycle of the economic upturn that started in 2002-03. Therefore, he expects the equity markets to attain a double-digit growth in the next one year, though not a higher double-digit growth. However, Mr. Andrade cautions that still the primary risk for India remains and if rates start increasing in the West then there might be a capital flight from India to the dollar-based assets. Moreover, in his opinion surging oil prices are also one of the risks to the entire economic growth story.
He agrees that India is one of the countries where a disproportionate amount of foreign money has come in. But he does not affirm that these flows will continue going forward. However, he says that India will certainly continue to get fresh money.
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Protected Fund : A type of mutual fund that guarantees an investor at least the initial investment, plus any capital gains, if it is held for the contractual term. The idea behind this type of fund is that you will be exposed to market returns because the fund is able to invest in the stock market, but you will have the safety of the guaranteed principal.
(Source:Investopedia) |
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- After a declining trend for three successive months, India received Foreign Direct Investment (FDI) worth $2.11 billion in September 2010, an increase of about 40% over last year (FDI in September 2009 was $1.51 billion). FDI inflows so far this year for India are amounting to $38 billion.
The sectors which attracted FDI include services, telecommunications, construction activities and computer software and hardware.
- Despite food inflation coming down to 10.15% for the week ended November 13, 2010 from 10.30% in the previous week, absolute level of prices do not seem to have subsided. Index for food articles rose 0.7% during the week ended November 13, indicating that the decline in inflation is largely because of the base effect or the statistical impact of rising price index this time last year.
CRISIL Chief Economist Mr. D. K. Joshi said, "Food inflation should be in single digits by December. We expect overall inflation at 6% and food at 6-7 % by March-end."
- The Organisation for Economic Cooperation and Development (OECD) has raised India's GDP (Gross Domestic Product) growth for the current fiscal to 9.1% from 8.3% earlier on the back of a strong rebound in the agricultural sector.
However, the OECD growth forecast should not be confused with Government of India's (GoI) projections for this fiscal at 8.5%, since the methodologies differ. While GoI calculates GDP by excluding indirect taxes, OECD includes these taxes for its calculation of GDP.
- The recent bond issue by State Bank of India (SBI) from October 18, 2010 - October 25, 2010 at a yield of 9.25% for 10 years and 9.5% for 15 years has turned out to be profitable for investors as the yields have now fallen below 9%.
The yield on the bond and price of the bond share an inverse relationship between each other. Hence, the price of the bond increases when the yield of the bond falls, which makes it profitable for the investors.
- The National Payment Corporation of India (NPCI) launched Interbank Mobile Payment Service (IMPS), an instant funds transfer service through mobile phones, which allows customer of a bank to send money to a customer of any other bank. The IMPS will support interbank transaction from low-end handsets to high-end mobiles.
Chief Operating Officer of NPCI, Mr. M. Balakrishnan said, "As of now, we are not charging anything to banks for providing IMPS and we have also requested banks not to charge their customers for this service till such a time the number of transaction reaches one million. In principle, banks have agreed not to charge anything to customers. NPCI will start charging banks 25 paise for every transaction from March 31, 2011."
Currently State Bank of India (SBI), Axis Bank, ICICI Bank, Union Bank of India and Yes bank have signed with NPCI for the service while HDFC Bank will join in soon.
- The National Housing Bank (NHB) plans to issue prudential norms for housing finance companies in December 2010.
NHB Chairman and Managing Director, Mr. R V Verma said, "We are waiting for the RBI to finalise its guidelines and notify them. Subsequent to that, we should be able to come out with norms for housing finance companies in December."
- ICICI Bank Limited launched 'Fixed Rupee' - a convenient facility that enables Non-Resident Indians (NRIs) to send the exact Rupee amount remittance to India since the exchange rate is confirmed at the time of initiating the remittance.
The 'Fixed Rupee' facility is available on Money2India.com - ICICI Bank's online money transfer tracking service.
- SEBI has asked Asset Management Companies (AMCs) to avoid exposure to real estate debt in certain schemes. SEBI has directed AMCs to mention a 'negative sector list' in their draft prospectus, and give an undertaking that they will not invest in sectors that appear in this list.
Reacting to this, an Investment Head of a mutual fund house said, "It is only conveyed to fund houses verbally. The directive to include real estate in the negative list is happening more in the case of fund houses that are launching capital-protected schemes." |
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